As of Tue 4 Feb, Singapore Time zone UTC+8

FX MOVES

U.S. Dollar Index, +0.39%, 97.81
USDJPY, +0.21%, $108.61
EURUSD, -0.24%, $1.1063
GBPUSD, -1.40%, $1.2997
USDCAD, +0.41%, $1.3296
AUDUSD, -0.04%, $0.6690
NZDUSD, +0.02%, $0.6460

MARKET MOVES

S&P500, +0.73%, 3,248.92
Dow Jones, +0.29%, 28,338.0
Nasdaq, +1.34%, 9,273.40
Nikkei Futures, +0.37%, 22,847.5
ASX 200 Futures, +0.04%, 6,858.5

WHAT HAPPENED YESTERDAY

CHINA’S JAN FACTORY ACTIVITY GROWTH SLOWS TO 5-MONTH LOW

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) eased to 51.1 from 51.5 in December, missing expectations but remaining above the 50-mark that separates growth from contraction for the sixth straight month. Analysts had expected a reading of 51.3. The findings, which focus mostly on small and export-oriented businesses, were slightly more optimistic than those in an official survey released on Friday, which showed growth had stalled. But they likely did not reflect the early impact of the public health crisis which flared in late January, which could weigh heavily on economic growth in the coming months.

*IMPACT:* China’s production numbers should only deteriorate from here due to a domestic standstill. To alleviate the impact of weaker growth, the People’s Bank of China (PBOC) may fix the RMB lower against the Dollar to facilitate trade, this will be bearish for currencies that are economically sensitive to China, like the Aussie and Singapore Dollar.

U.S. MANUFACTURING REBOUNDS

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December. A reading above 50 indicates expansion in the manufacturing sector. While manufacturing appears to be stabilizing, the construction sector is showing some weakness. A separate report from the Commerce Department on Monday showed construction spending decreased 0.2% in December, the first drop since June, as an investment in both private and public projects fell.

*IMPACT:* Manufacturers have been heartened by easing trade tensions with China and the signing of a new trade deal with Mexico and Canada that replaces the old North American Free Trade Agreement. Yet the coast is far from clear, especially with the spread of the coronavirus causing nations to close themselves off to China. China is the world’s largest manufacturing hub and the second biggest economy in the world. The U.S. isn’t immune. Some economists predict the damage from the virus could be significant in the first quarter, cutting as much as 0.5% points off U.S. growth. Any slowdown in U.S. while foreign buying of Treasuries remains weak will cause the Fed to keep pace with its Balance Sheet Expansion program, this is positive for equities and bearish for Dollar in the long run.

STERLING SLIDES ON WHAT COMES NEXT IN BREXIT

Britain and the European Union have taken their first steps toward negotiating a new free trade deal, staking out sharply divergent positions Monday that point to more fraught negotiations and another year of uncertainty for businesses. The United Kingdom is now in a transition period until the end of 2020 during which it must agree to a trade deal with the European Union or risk subjecting British companies to new barriers that could impact supply chains and make their products and services more expensive.

*IMPACT:* The path taken by the United Kingdom will have major consequences for companies that have already endured nearly four years of uncertainty. The global automakers who have built factories in Britain are particularly vulnerable to changes that could disrupt their just-in-time supply chains and production, eroding profit margins that are already razor-thin. Signs that the two sides are already at odds over how to interpret that declaration sent Sterling down against the Dollar and the Euro on Monday as traders worried about the implications for the UK economy of failing to reach a deal.

DAY AHEAD

The Reserve Bank of Australia (RBA) has a tough balancing act on its hands when it concludes its policy meeting later today. On the one hand, recent data have been solid enough to dispel market expectations for an immediate rate cut to support the economy, with the implied probability for such an action currently resting at a lowly 28%. The unemployment rate fell back down to 5.1% in December, retail sales accelerated sharply in November, and inflation picked up in Q4 – even if it remains stubbornly below the RBA’s target range.

However, these are backward-looking data and new risks have emerged. For example, several weeks of raging bushfires across Australia threaten to dampen economic growth. Likewise, the coronavirus epidemic amplifies downside risks for Australia’s economy, not only due to spillover effects from a slowdown in China and falling commodity prices but also due to the negative impact this might have on Australia’s tourism industry, which relies heavily on Chinese travelers.

Sentiment

FX

US DOLLAR, USD (positive)
JAPANESE YEN, JPY (positive)
EURO, EUR (neutral)
STERLING, GBP (neutral)
CANADIAN DOLLAR, CAD (negative)
AUSTRALIAN DOLLAR, AUD (neutral)
NEW ZEALAND DOLLAR, NZD (neutral)
SWISS FRANC, CHF (positive)

MARKETS

S&P 500, SPX (neutral)
NIKKEI 225, JP225 (neutral)
SHANGHAI COMPOSITE, SSEC (neutral)
ASX 500, AUS200 (neutral)

COMMODITIES

OIL, CL (negative)
GOLD, GC (positive)
COPPER, HG (negative)